Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Ships and drilling rigs surround the Discoverer Enterprise as it continues to recover oil from the Deepwater Horizon drill site in the Gulf of Mexico (© Sean Gardner / Reuters)
Ships and drilling rigs surround the Discoverer Enterprise as it continues to recover oil from the Deepwater Horizon drill site in the Gulf of Mexico (© Sean Gardner / Reuters)

Focus shifts from drilling ban to 'virtual moratorium' Add to ...

Royal Dutch Shell PLC and its Calgary-based partner, Nexen Inc., were on a roll in the Gulf of Mexico when BP PLC's catastrophic blowout brought all exploration activity to a screeching halt .

In March - virtually a month to the day before the BP disaster - the partners announced a significant discovery at their Appomattox play in the eastern Gulf of Mexico, the third discovery in the area after finds at Shiloh and Vicksburg. The Appomattox discovery well was drilled in 2,186 metres of water, a depth 670 metres greater than BP's Macondo well .

More Related to this Story

In the aftermath of the blowout, President Barack Obama declared a six-month moratorium on deep-water exploration activity in order to give investigators time to determine its cause and to ensure industry practices that contributed to it were changed .

Now that BP has managed to staunch the gushing crude and seal the well, the oil industry is increasingly hopeful that it can soon get back to business in the Gulf, perhaps even before the November expiry of the moratorium .

"Obviously, it's a turning point and we knew that once the well was capped and no longer leaking into the ocean, it would be a pivotal moment for us, " said Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, which represents major offshore producers .

"I think we've seen a softening of the administration's attitude on it, " Mr. John said. He noted that Secretary of the Interior Ken Salazar said last week that the moratorium could end earlier than planned if the industry can demonstrate it has new safety measures in place .





We are less interested in the official moratorium and more interested in the possibility of an extended 'virtual moratorium'. Robert Johnston, Eurasia Group




The former congressman said the administration is "feeling the heat, " not just from the industry but from Gulf state politicians from both major parties and from business and citizens at large who see the moratorium as adding insult to the economic injury caused by the blowout itself .

Mr. Obama's top energy adviser, Carol Browner, said Sunday that the administration would consider lifting the moratorium early, but only if its environmental concerns are met .

"We understand the importance of these jobs but we also understand the importance of protecting the Gulf Coast and its communities, " Ms. Browner told Meet the Press .

Analysts warn that the formal moratorium is only the most obvious part of the industry's problems in the Gulf. Threatened legislation in Congress, including higher caps on company liability, tougher rules from the reformed federal offshore regulator and a slowdown in permitting approvals could not only drive up costs but severely restrict activity .

"We are less interested in the official moratorium and more interested in the possibility of an extended 'virtual moratorium', " said Robert Johnston, director of global energy practice for Eurasia Group, a U.S. based risk-management firm .

He said the full picture on legislation and regulatory changes may not emerge until next year. "So even if the moratorium is lifted ahead of November, we would not expect a rush back to drilling in the Gulf of Mexico. "





It is very important to these companies to resume drilling. It is the growth area - there aren't too many areas that are open… and they don't want to lose the momentum. Fadel Gheit, Oppenheimer & Co. Inc. analyst




And the administration will likely want to hear from the commission it has established on the blowout and its recommendations to avoid a repeat for the disaster .

The industry is looking to convince federal politicians and regulators that it has learned valuable lessons from the BP spill. Blowout preventers have been re-tested, and four international oil companies have committed $1-billion (U.S.) to establish a non-profit consortium, the Marine Well Containment Company, that will provide vastly upgraded rapid response capability in the Gulf .

Exxon Mobil Corp. will lead the effort, joined by Shell, Chevron Corp. and ConocoPhillips Co., to construct and deploy the equipment that BP developed over three months to capture oil from its blowout and cap the well .

The companies said the effort was being accelerated to improve environmental protection as activity resumes in the Gulf which, they noted, accounts for 30 per cent of U.S. domestic oil and gas production and supports 170,000 jobs .

Indeed, last week, even BP executives dared to suggest the much-vilified company would eventually resume drilling there - not surprising given the London-based super major is by far the largest leaseholder and largest producer in the Gulf of Mexico, accounting for some 20 per cent of production there .

"It is very important to these companies to resume drilling, " said Fadel Gheit, an analyst with Oppenheimer & Co. Inc. in New York. "It is the growth area - there aren't too many areas that are open… and they don't want to lose the momentum. "

Raoul LeBlanc, a Houston-based analyst with PFC Energy, said the key moment came when BP capped the well on July 15, and attention began to shift from the immediate environmental crisis to broader concerns .

With the mid-term elections looming in November, Mr. LeBlanc expects the Obama administration to pay greater attention to the employment impacts. But he too warns that the lifting of the moratorium will be meaningless if the new regulatory agency imposes such strict rules as to prevent companies from drilling .

Follow on Twitter: @smccarthy55

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories